GATT Article XX and non-GATT WTO Agreements

7.732. Thailand argues that, insofar as the Charges are inconsistent with the provisions of the CVA, such inconsistency is justified under Article XX(d) because the Charges are measures "necessary to secure compliance with laws or regulations" and that such inconsistency is also justified under Article XX(a) because the Charges are measures "necessary to protect public morals". As a threshold issue, Thailand submits that Article XX is available to justify inconsistencies with the CVA. ...

The Panel set out the issue as follows:

7.745. We understand the parties to agree that the applicability of Article XX of the GATT 1994 to the CVA must be determined on the basis of a textual analysis of the CVA and the GATT 1994. Specifically, we understand Thailand to accept that Article XX does not automatically apply to obligations in the covered agreements other than the GATT 1994, as reflected in its view that Article XX applies to other covered agreements where there is "a clear textual link between the provisions under which claims are made and the text of the GATT 1994, in particular Article XX." We understand the Philippines to accept that the absence of a specific textual reference to Article XX is not in and of itself dispositive, as reflected in its view that panels and the Appellate Body "have required sufficiently clear affirmative language to justify its application outside of the GATT 1994".

7.746. Therefore, we start our analysis with an examination of the textual bases identified by Thailand. Following that, we address Thailand's argument that the inapplicability of Article XX to the CVA would lead to an absurd result since Article XX would be available to justify a violation of Article VII of the GATT 1994, but not the Agreement that implements that provision. We then address Thailand's argument that Article XX applies to the CVA since this is the only way to establish a balance between Members' obligations and Members' right to regulate. In our assessment of that issue, we consider the consequences of the inapplicability of Article XX to the CVA on Members' right to enact measures to combat customs fraud.

7.747. Thailand identifies three textual bases to support its assertion that Article XX of the GATT 1994 is available to justify violations of the CVA. First, Thailand refers to the full title of the CVA, namely the "Agreement on Implementation of Article VII of the GATT 1994", which refers to Article VII of the GATT 1994.1603 Second, Thailand refers to the language in the preamble to the CVA indicating the desire to "further the objectives of the GATT 1994", and recognizing "the importance of the provisions of Article VII of GATT 1994 and desir[e] to elaborate rules for their application in order to provide greater uniformity and certainty in their implementation". Third, Thailand notes that Article XX(d) of the GATT 1994 explicitly indicates that Members may adopt measures necessary to secure compliance with their laws "relating to customs enforcement", which indicates that Article XX(d) "can be used to justify measures … that are necessary to enforce a Member's customs laws". While we recognize that treaty interpretation calls for a holistic analysis, for analytical clarity we will assess these three textual bases in turn.

The whole section of the panel report is worth a read, but I'm going to focus on one of Thailand's arguments:

7.751. Thailand submits that, if Article XX is not available to justify violations of the CVA, this would "result in an absurd situation, contrary to the principle that 'a treaty interpreter must read all applicable provisions of a treaty in a way that gives meaning to all of them, harmoniously'". This result would be absurd, according to Thailand, as this would allow a violation of Article VII of the GATT 1994 to be justified, in principle, under the general exceptions in Article XX of the GATT 1994, but would not allow for the justification of a violation of the CVA, notwithstanding that the CVA is an agreement that expressly implements Article VII of the GATT 1994.

7.752. We observe that the core concept of the "transaction value" established in the CVA is not necessarily identical to the concept of "actual value" as articulated in Article VII:2(b) of the GATT 1994, and that the CVA elaborates on the rudimentary provisions of Article VII by establishing a comprehensive system for customs valuation, comprising a series of multiple different steps and methods subject to detailed rules governing their sequential application. We do not consider that it follows from the fact that Article XX is applicable to the obligations contained in Article VII of the GATT 1994 that there would be a legal conflict or absurd result if Article XX were not applicable to the obligations in the CVA. In our view, it does not follow that the applicability of Article XX exceptions to the general obligations regarding customs valuation contained in Article VII of the GATT 1994 mandates that those same exceptions must also be applicable to the system of customs valuation comprising detailed methodologies found in the CVA. Indeed, the CVA contains specific and technical rules that elaborate how the customs value of imports may be determined, which are additional to, and different from, those found in Article VII of the GATT 1994.

7.753. We also note that, with the exception of China, all of the other third parties in this dispute that expressed a view on the matter, including Canada, the European Union, Japan, and the United States, agree with the Philippines that Article XX is not available to justify inconsistencies with the CVA and that the applicability of Article XX to violations of Article VII, but not to violations of the CVA, would not lead to an absurdity. We note Japan's view that "the CVA is a special agreement on the implementation for a specific article, namely, Article VII of the GATT 1994. Therefore, by its nature, the CVA constitutes special law vis-à-vis GATT 1994, and provides special rules focusing on how Member states should determine the customs value." We also note the European Union's view that "the rationale and nature of obligations set out in the CVA are not such as to justify the conclusion that Article XX should justify breaches in this context".

7.754. Thailand submits that in the context of the TBT Agreement, the Appellate Body found that there exists a "balance" between a Member's obligations and a Member's right to regulate that is "inherent" in the TBT Agreement, and that it was for this reason that Article XX of the GATT 1994 was found to be inapplicable to the TBT Agreement. Thailand considers that "in the case of the CVA, there is no such balance that can be found between obligations it contains and the right of Members to regulate", that there is "no reason why the CVA should be deprived of such a balance", and that therefore "the only way to ensure this balance is respected is for Article XX of the GATT 1994 to be available to justify a measure that is found to be inconsistent with certain provisions of the CVA."

7.755. We observe that the Appellate Body has repeatedly characterized the object and purpose of various WTO agreements in terms of "balance". As Thailand notes, the Appellate Body has articulated the object and purpose of the TBT Agreement in terms of striking a "balance …. between, on the one hand, the desire to avoid creating unnecessary obstacles to international trade and, on the other hand, the recognition of Members' right to regulate", and has said that this "is not, in principle, different from the balance set out in the GATT 1994". The Appellate Body has confirmed that the GATS likewise "seeks to strike a balance between a Member's obligations assumed under the Agreement and that Member's right to pursue national policy objectives". The Appellate Body has also defined the object and purpose of the SCM Agreement as reflecting a "delicate balance between the Members that sought to impose more disciplines on the use of subsidies and those that sought to impose more disciplines on the application of countervailing measures". The Appellate Body has also described accession protocols as containing a "delicate balance of rights and obligations".

7.756. We consider that there is also an inherent balance in the CVA. This inherent balance finds reflection primarily through the relatively limited scope of the substantive and procedural obligations contained in the CVA, including a degree of discretion accorded to the customs authority in implementing those obligations. These obligations elaborate a methodology and a set of procedural obligations that must be followed by domestic authorities when making customs valuation determinations, but these obligations apply only where the customs authority engages in a determination of the monetary worth or price of imported goods for the purposes of levying ad valorem customs duties. Thus, measures taken by a Member to combat customs fraud will not run afoul of the obligations contained in the CVA unless such measures are premised on a false customs value that was determined inconsistently with the provisions of the CVA. This is confirmed by Article 17 of the CVA, which establishes that nothing in the CVA restricts or calls into question the rights of customs authorities to satisfy themselves as to the truth or accuracy of statements made by importers. Given the limited scope and reach of the obligations in the CVA, we see no reason why authorities pursuing the legitimate regulatory purpose of identifying or combatting customs fraud would need to deviate from the system of customs valuation established in the CVA, so as to require recourse to Article XX of the GATT 1994. For these reasons, we do not agree with the premise that there is no "inherent balance" in the CVA, such that "the only way to ensure this balance is respected is for Article XX of the GATT 1994 to be available".

7.757. Based on the foregoing, the Panel finds that the general exceptions in Article XX of the GATT 1994 are not applicable to the obligations in the CVA.

One thing that interests me about this argument is how it might apply to the other multilateral trade in goods agreements. The panel said that there is "an inherent balance in the CVA," which "finds reflection primarily through the relatively limited scope of the substantive and procedural obligations contained in the CVA, including a degree of discretion accorded to the customs authority in implementing those obligations." So what are the implications of this approach for other agreements? Not all of them have such a limited scope, but don't they all have an "inherent balance" of some sort? How does each one's balance -- in particular, its impact on the "right to regulate" -- play a role in this kind of analysis?

I think Thailand is right that making an Article XX defense available for GATT obligations, but not for the obligations in other trade in goods agreements that further articulate those GATT obligations, is "absurd" in a sense. While panels and the Appellate Body can come up with interpretations that limit potential problems, as the Appellate Body tried to do with its interpretation of certain provisions of the TBT Agreement, having the standard defenses available seems useful. Nonetheless, it doesn't seem like the jurisprudence is going in that direction.

7.732. Thailand argues that, insofar as the Charges are inconsistent with the provisions of the CVA, such inconsistency is justified under Article XX(d) because the Charges are measures "necessary to secure compliance with laws or regulations" and that such inconsistency is also justified under Article XX(a) because the Charges are measures "necessary to protect public morals". As a threshold issue, Thailand submits that Article XX is available to justify inconsistencies with the CVA. ...

The Panel set out the issue as follows:

7.745. We understand the parties to agree that the applicability of Article XX of the GATT 1994 to the CVA must be determined on the basis of a textual analysis of the CVA and the GATT 1994. Specifically, we understand Thailand to accept that Article XX does not automatically apply to obligations in the covered agreements other than the GATT 1994, as reflected in its view that Article XX applies to other covered agreements where there is "a clear textual link between the provisions under which claims are made and the text of the GATT 1994, in particular Article XX." We understand the Philippines to accept that the absence of a specific textual reference to Article XX is not in and of itself dispositive, as reflected in its view that panels and the Appellate Body "have required sufficiently clear affirmative language to justify its application outside of the GATT 1994".

7.746. Therefore, we start our analysis with an examination of the textual bases identified by Thailand. Following that, we address Thailand's argument that the inapplicability of Article XX to the CVA would lead to an absurd result since Article XX would be available to justify a violation of Article VII of the GATT 1994, but not the Agreement that implements that provision. We then address Thailand's argument that Article XX applies to the CVA since this is the only way to establish a balance between Members' obligations and Members' right to regulate. In our assessment of that issue, we consider the consequences of the inapplicability of Article XX to the CVA on Members' right to enact measures to combat customs fraud.

7.747. Thailand identifies three textual bases to support its assertion that Article XX of the GATT 1994 is available to justify violations of the CVA. First, Thailand refers to the full title of the CVA, namely the "Agreement on Implementation of Article VII of the GATT 1994", which refers to Article VII of the GATT 1994.1603 Second, Thailand refers to the language in the preamble to the CVA indicating the desire to "further the objectives of the GATT 1994", and recognizing "the importance of the provisions of Article VII of GATT 1994 and desir[e] to elaborate rules for their application in order to provide greater uniformity and certainty in their implementation". Third, Thailand notes that Article XX(d) of the GATT 1994 explicitly indicates that Members may adopt measures necessary to secure compliance with their laws "relating to customs enforcement", which indicates that Article XX(d) "can be used to justify measures … that are necessary to enforce a Member's customs laws". While we recognize that treaty interpretation calls for a holistic analysis, for analytical clarity we will assess these three textual bases in turn.

The whole section of the panel report is worth a read, but I'm going to focus on one of Thailand's arguments:

7.751. Thailand submits that, if Article XX is not available to justify violations of the CVA, this would "result in an absurd situation, contrary to the principle that 'a treaty interpreter must read all applicable provisions of a treaty in a way that gives meaning to all of them, harmoniously'". This result would be absurd, according to Thailand, as this would allow a violation of Article VII of the GATT 1994 to be justified, in principle, under the general exceptions in Article XX of the GATT 1994, but would not allow for the justification of a violation of the CVA, notwithstanding that the CVA is an agreement that expressly implements Article VII of the GATT 1994.

7.752. We observe that the core concept of the "transaction value" established in the CVA is not necessarily identical to the concept of "actual value" as articulated in Article VII:2(b) of the GATT 1994, and that the CVA elaborates on the rudimentary provisions of Article VII by establishing a comprehensive system for customs valuation, comprising a series of multiple different steps and methods subject to detailed rules governing their sequential application. We do not consider that it follows from the fact that Article XX is applicable to the obligations contained in Article VII of the GATT 1994 that there would be a legal conflict or absurd result if Article XX were not applicable to the obligations in the CVA. In our view, it does not follow that the applicability of Article XX exceptions to the general obligations regarding customs valuation contained in Article VII of the GATT 1994 mandates that those same exceptions must also be applicable to the system of customs valuation comprising detailed methodologies found in the CVA. Indeed, the CVA contains specific and technical rules that elaborate how the customs value of imports may be determined, which are additional to, and different from, those found in Article VII of the GATT 1994.

7.753. We also note that, with the exception of China, all of the other third parties in this dispute that expressed a view on the matter, including Canada, the European Union, Japan, and the United States, agree with the Philippines that Article XX is not available to justify inconsistencies with the CVA and that the applicability of Article XX to violations of Article VII, but not to violations of the CVA, would not lead to an absurdity. We note Japan's view that "the CVA is a special agreement on the implementation for a specific article, namely, Article VII of the GATT 1994. Therefore, by its nature, the CVA constitutes special law vis-à-vis GATT 1994, and provides special rules focusing on how Member states should determine the customs value." We also note the European Union's view that "the rationale and nature of obligations set out in the CVA are not such as to justify the conclusion that Article XX should justify breaches in this context".

7.754. Thailand submits that in the context of the TBT Agreement, the Appellate Body found that there exists a "balance" between a Member's obligations and a Member's right to regulate that is "inherent" in the TBT Agreement, and that it was for this reason that Article XX of the GATT 1994 was found to be inapplicable to the TBT Agreement. Thailand considers that "in the case of the CVA, there is no such balance that can be found between obligations it contains and the right of Members to regulate", that there is "no reason why the CVA should be deprived of such a balance", and that therefore "the only way to ensure this balance is respected is for Article XX of the GATT 1994 to be available to justify a measure that is found to be inconsistent with certain provisions of the CVA."

7.755. We observe that the Appellate Body has repeatedly characterized the object and purpose of various WTO agreements in terms of "balance". As Thailand notes, the Appellate Body has articulated the object and purpose of the TBT Agreement in terms of striking a "balance …. between, on the one hand, the desire to avoid creating unnecessary obstacles to international trade and, on the other hand, the recognition of Members' right to regulate", and has said that this "is not, in principle, different from the balance set out in the GATT 1994". The Appellate Body has confirmed that the GATS likewise "seeks to strike a balance between a Member's obligations assumed under the Agreement and that Member's right to pursue national policy objectives". The Appellate Body has also defined the object and purpose of the SCM Agreement as reflecting a "delicate balance between the Members that sought to impose more disciplines on the use of subsidies and those that sought to impose more disciplines on the application of countervailing measures". The Appellate Body has also described accession protocols as containing a "delicate balance of rights and obligations".

7.756. We consider that there is also an inherent balance in the CVA. This inherent balance finds reflection primarily through the relatively limited scope of the substantive and procedural obligations contained in the CVA, including a degree of discretion accorded to the customs authority in implementing those obligations. These obligations elaborate a methodology and a set of procedural obligations that must be followed by domestic authorities when making customs valuation determinations, but these obligations apply only where the customs authority engages in a determination of the monetary worth or price of imported goods for the purposes of levying ad valorem customs duties. Thus, measures taken by a Member to combat customs fraud will not run afoul of the obligations contained in the CVA unless such measures are premised on a false customs value that was determined inconsistently with the provisions of the CVA. This is confirmed by Article 17 of the CVA, which establishes that nothing in the CVA restricts or calls into question the rights of customs authorities to satisfy themselves as to the truth or accuracy of statements made by importers. Given the limited scope and reach of the obligations in the CVA, we see no reason why authorities pursuing the legitimate regulatory purpose of identifying or combatting customs fraud would need to deviate from the system of customs valuation established in the CVA, so as to require recourse to Article XX of the GATT 1994. For these reasons, we do not agree with the premise that there is no "inherent balance" in the CVA, such that "the only way to ensure this balance is respected is for Article XX of the GATT 1994 to be available".

7.757. Based on the foregoing, the Panel finds that the general exceptions in Article XX of the GATT 1994 are not applicable to the obligations in the CVA.

One thing that interests me about this argument is how it might apply to the other multilateral trade in goods agreements. The panel said that there is "an inherent balance in the CVA," which "finds reflection primarily through the relatively limited scope of the substantive and procedural obligations contained in the CVA, including a degree of discretion accorded to the customs authority in implementing those obligations." So what are the implications of this approach for other agreements? Not all of them have such a limited scope, but don't they all have an "inherent balance" of some sort? How does each one's balance -- in particular, its impact on the "right to regulate" -- play a role in this kind of analysis?

I think Thailand is right that making an Article XX defense available for GATT obligations, but not for the obligations in other trade in goods agreements that further articulate those GATT obligations, is "absurd" in a sense. While panels and the Appellate Body can come up with interpretations that limit potential problems, as the Appellate Body tried to do with its interpretation of certain provisions of the TBT Agreement, having the standard defenses available seems useful. Nonetheless, it doesn't seem like the jurisprudence is going in that direction.